Alternative investment funds in Serbia and their establishment is a topic that interests you, but you are not sure where to start and what types would be the right choice for you?
This text covers in a comprehensive way all the questions that may interest you regarding their establishment, with a special focus on the advantages and disadvantages of alternative investment funds.
Since there are a large number of types and subtypes of these funds, if you are only interested in one of them - don't worry!
By clicking on the section that bears the name of the question you are interested in, you will get an overview of only the information that is useful to you.
Table of contents
Alternative Investment Funds in Serbia
- What are alternative investment funds?
- What are the advantages and disadvantages of alternative investment funds?
- What do Serbian regulations say about alternative investment funds?
- What types of alternative investment funds exist in Serbia?
- Alternative investment fund with the status of a legal entity
- Alternative investment fund without the status of a legal entity
- Alternative investment fund with internal management
- Alternative investment fund with public offering
- Alternative investment fund with private offer
- Attorney for alternative investment funds in Serbia
1. What are alternative investment funds?
Alternative Investment Funds (AIF) represent a special type of investment fund that collects capital from different investors with the aim of investing that capital wisely in different types of investments.
If you are wondering why you should set up an AIF, the answer is simple:
Making a profit for you and your investors.
In addition to this, there are many other advantages of alternative investment funds, to which our next section is dedicated.
2. What are the advantages and disadvantages of alternative investment funds?
The advantages of alternative investment funds are numerous, but among the main ones we can list:
- Greater freedom in choosing investments (e.g. real estate, private companies, hedge funds, various commodities, etc.)
- Greater freedom in the choice of investment strategies (and therefore a greater chance of attracting experienced investors who are ready to invest larger sums)
- Greater autonomy in fund management
- Potentially higher income
As for the disadvantages of alternative investment funds, they primarily require a high level of expertise and understanding of the investment markets, so it is recommended that you go this route only if you have the appropriate knowledge and experience. Also, the disadvantage of an alternative investment fund is that it usually represents investments with high risk and high volatility of the investment, but this is also a logical consequence of investments that promise a high return.
Why?
Because although by setting up an AIF you can attract experienced investors and potentially make higher profits, you also bear a significantly higher level of risk and responsibility.
3. What do regulations prescribe about alternative investment funds in Serbia?
The main regulations governing alternative investment funds in Serbia include:
- Law on alternative investment funds
- Rulebook on alternative investment funds
- Rulebook on types of alternative investment funds
- Rulebook on the conditions for performing the activities of the company for the management of alternative investment funds
- Rulebook on the capital of the management company of alternative investment funds (AIFM)
- Rulebook on the conditions for performing the duties of a depository of an alternative investment fund
- Instructions on how to calculate the capital of a closed alternative investment fund that has the status of a legal entity
These regulations answer questions such as:
- How to establish an Alternative Investment Fund
- How to establish a management company of alternative investment funds
- How to place AIF on the market of alternative investment funds
- How to manage shares in funds
- What types of AIFs and AIFMs exist
- What rights and obligations exist in relation to the safekeeping of funds' assets and the monitoring of transactions
- Who are the competent authorities that supervise AIF activities, and many other issues...
4. What types of alternative investment funds exist in Serbia?
Alternative investment fund with the status of a legal entity
An alternative investment fund with legal entity status is a special type of AIF that is organized as a legal entity, which means that it is treated as a legally separate entity from its founders and investors.
The most important thing to know about this type of AIF is that:
- It is managed by AIFM (i.e. managed on behalf and for the account of AIF)
- Shares in the AIF cannot simply be redeemed at the request of the members of the AIF's assets
This type of alternative investment fund is a good choice for founders who want to ensure long-term investment and a higher level of protection, due to the impossibility of quick withdrawal of funds by investors.
Alternative investment fund without the status of a legal entity
An alternative investment fund without the status of a legal entity, unlike the previous type, is not organized as a legally separate entity.
This type is also managed by the Management Company of Alternative Investment Funds (AIFM), however in this case it does so in its own name and for a joint account.
What it means?
This means that investors who invest in this AIF become a contracting party with AIFM and jointly share profits or losses in accordance with their investment units.
This type of AIF is less attractive to investors because it requires them to keep their funds in the fund for longer, but it is generally more flexible and simpler for founders because it does not have a strict legal structure.
Alternative investment fund with internal management
An alternative investment fund with internal management has the status of a legal entity and manages its own assets.
In other words, this fund:
- It carries out its own supervision
- Has complete control over making investment decisions
- Responds more quickly to market changes
If you have in-house management with a high level of investment expertise and experience, this type of AIF may be a good option for you.
Alternative investment fund with public offering
Within Alternative Investment Funds with Public Offering, investing in the fund is available to all investors, regardless of their type, size or expertise.
As this type of fund allows investment also for small investors, it is subject to somewhat stricter regulation in order to protect their interests.
Also, this type of alternative investment funds finds investors more easily, since it does not carry as many risks as private offering AIFs.
AIF with Public offering has two subtypes: open-end and closed-end AIF.
Open alternative investment funds with public offering
Open alternative investment funds do not have their own legal personality and management structure, but are managed by a specific Management Company of alternative investment funds.
When an open-ended alternative investment fund with a public offering offers investment units, the fund and its management structure must ensure that potential investors are properly informed.
This includes the preparation and publication of the AIF's prospectus and business terms, which contain key information about the funds, their strategies, risks and other relevant aspects.
AIFM is also obliged to inform investors once a month about the net value of AIF assets per investment unit, as well as to enable investors to issue and buy investment units at least once a month.
This type of AIF provides greater transparency and protection for investors, as they are able to request the fund to redeem their units at any time, which makes it particularly attractive.
Closed-end alternative investment funds with public offering
A closed alternative investment fund, unlike an open one, can represent both an independent assets and a legal entity established by a management company of alternative investment fund.
A closed-end AIF with a public offering (and with the status of a legal entity) must make its shares available on the market where their purchase and sale will take place.
This is done by the Management Company of Alternative Investment Funds, by listing shares on the regulated market within 30 days of the establishment of this type of AIF.
In this way, the liquidity and availability of shares to investors is ensured, that is, investors are enabled to buy and sell fund shares on the market more easily.
In this subtype of AIF with a public offer, the unit owners cannot arbitrarily demand the redemption of those shares from the fund.
Alternative investment fund with private offer
A privately offered alternative investment fund, unlike a publicly offered AIF, is not open to the general public.
This type of AIF is limited to a certain circle of qualified, professional or semi-professional investors and is "designed" for investors who have specific investment needs and strategies.
In other words, an AIF with a private offering is attractive to investors who want to diversify their portfolio, as well as to founders who want greater autonomy and flexibility in making investment decisions.
And AIF with a private offering can be open and closed, and it can also be divided into two more subtypes: general and special AIFs.
Open alternative investment fund with private offer
An open alternative investment fund with a private offering is mentioned in the law in the context of a change of type.
Namely, under certain conditions, this fund can change its type and become a UCITS fund (a special type of fund regulated by the EU).
If there is a change in the type of fund, AIFM is obliged to inform members (or shareholders) about the change and to inform them of the right to withdraw their shares without additional fees, under certain conditions and within a certain period.
Closed alternative investment fund with private offering
The law states that a closed alternative investment fund with a private offer for investment in real estate may acquire real estate in the Republic of Serbia and another country.
The law also defines:
- Under what conditions is this acquisition of real estate possible (eg. the valuation must be performed by an independent appraiser)
- What is the minimum stake of AIF assets in real estate (70%)
- What investment limits exist and when they can be exceeded
- What additional investments are possible
- Other important issues
These provisions serve to ensure transparency, accountability and sustainable management of the fund that deals with investments in real estate.
General alternative investment fund with private offering
A general alternative investment fund with a private offering must make investments in at least six different assets.
As you can see, this type has established a requirement for diversification in order to reduce risk by allocating investments to different active classes and strategies.
In this way, investors are protected from excessive risk concentration in one asset or sector.
Investors are also protected by being able to make a one-time payment, without the obligation of further regular additions to the fund.
For founders, this means greater access to professional investors who bring with them more capital, but also the potential for higher returns, given the investments in different (and often less available) types of assets on the market.
Special alternative investment fund with private offering
There are 8 types of special alternative investment funds with a private offering, of which we will briefly mention 6 of them.
The last two types, which include the European venture capital fund and the European social entrepreneurship fund, will not be possible to establish in Serbia before accession to the European Union, so we will leave it out of our text for now.
Alternative investment fund of private capital (private equity)
The alternative private capital investment fund aims to enable the optimization of business and financial performance of investors.
This type of AIF invests in equity instruments (private companies and companies that are not publicly listed on the stock exchange), which means that the founders can have a greater degree of control over the investments themselves, i.e. can have a greater impact on their success. These are often small and medium-sized companies that have the potential to achieve much higher revenues with adequate optimization and professionalization of the business process or, with additional investments, to conquer large markets.
Private equity AIFs are usually established for a fixed (but in practice usually longer) period of time, which means that there is a clear point and strategy for exiting investments.
This can be attractive to founders who want a clearly defined time frame for their investments, as well as to investors who are willing to take long-term risks and who want to diversify their portfolio.
Venture capital Alternative investment fund
An venture capital alternative investment fund focuses on investing in business entities in the initial stages of business or startup companies that show potential for growth and expansion.
This type can enable founders to support young entrepreneurs and help them develop their business innovations, and if these business entities successfully enter the market, they can also achieve a significant return on their investment.
This type of AIF is widely recognized as venture capital funds.
Alternative investment fund with a private offer for investment in real estate
An alternative investment fund with a private offering for real estate investment has a focus, as the name suggests, on real estate investment.
This includes investing in:
- Apartment buildings
- Commercial buildings
- Land for construction
- Agricultural lands
- Other forms of real estate
As investors can invest in different properties, in different geographical locations, their investment risk is significantly reduced compared to investing in a specific object in a specific location, and the chances of return are increased.
In addition, in the first few years after the establishment of this AIF, there is a possibility of exceeding the investment limit in real estate, which can allow greater flexibility in the early stage of the fund's operations.
Fund of funds
A fund of funds is an excellent choice for founders who do not have enough knowledge or time to manage their investments.
This AIF invests in shares of other AIFs (at least 70% of the AIF's net value), which means that their portfolio will be exposed to different types of assets and management strategies, and that investment risk will be lower.
A hedge fund
Hedge funds have a great potential for high returns, and they often see high capital growth in the short term.
You'll agree, this sentence alone is enough to explain the appeal of hedge funds.
What is not so attractive is that this type of fund often in foreign practice has a much lower level of transparency when it comes to the exact location of the investor's money.
This type of AIF is characterized by the fact that they are available exclusively to professional investors, which for founders often means that they will have to meet quite specific investment requirements.
Specialized alternative investment fund
A specialized alternative investment fund focuses on a specific industry or area, which is why it is interesting for founders and investors who want to invest in what they know and understand best.
Thanks to its hyperfocus, this type of AIF can more easily identify high income opportunities and often their investments follow the success of a particular sector or industry.
On the other hand, as the success of these AIFs is often conditioned by the success of a particular industry, a specialized AIF can be highly risky and requires careful consideration of investment objectives and strategies.
Attorney for alternative investment funds in Serbia
Finally, it is important to consult with financial professionals and legal counsel such as an alternative investment fund attorney to make an informed decision about establishing an alternative investment fund.
Your decision should reflect your specific needs, goals and abilities for managing an alternative investment fund in compliance with the local regulation in Serbia.
